Order 98-2-25 / OST-97-2719 / OST-97-2720 / USA Jet / Feb 23, 1998

Issued by the Department of Transportation on the 23rd day of February 23, 1998

Applications of

as amended, for certificates of public convenience and necessity under 49 U.S.C. 41102 to engage in interstate and foreign scheduled air transportation of property and mail

By this order, we (1) conclude that USA Jet Airlines, Inc., is a citizen of the United States and is fit, willing, and able to provide interstate scheduled air transportation of property and mail as a certificated air carrier, (2) cancel the interstate and foreign charter all-cargo certificates issued to USA Jet by Order 96-6-48 as redundant, and (3) dismiss, at the applicant's request, its application in Docket OST-97-2720 for foreign scheduled all-cargo authority.

Section 41102 of Title 49 of the United States Code (Transportation) ("the statute") directs us to determine whether applicants for certificate authority to provide interstate scheduled air transportation are fit, willing, and able to perform such transportation and to comply with the statute and the regulations of the Department. In making fitness findings, the Department uses a three-part test that reconciles the Airline Deregulation Act's liberal entry policy with Congress' concern for operational safety and consumer protection. The three areas of inquiry that must be addressed in order to determine a company's fitness are whether the applicant (1) will have the managerial skills and technical ability to conduct the proposed operations, (2) will have access to financial resources sufficient to commence operations without posing an undue risk to

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consumers, and (3) will comply with the statute and regulations imposed by Federal and State agencies. We must also find that the applicant is a U.S. citizen.

On July 15, 1997, USA Jet filed applications in Dockets OST-97-2719 and 2720 requesting authority to provide interstate and foreign charter air transportation of persons, property, and mail pursuant to section 41102. On September 18, USA Jet filed an amendment to its initial applications withdrawing its request for charter passenger air transportation and requesting, instead, certificates to engage in interstate and foreign scheduled all-cargo air transportation. On October 31, USA Jet withdrew its application in Docket OST-97-2720 for foreign certificate authority. USA Jet requested that its remaining interstate application be processed by nonhearing procedures under Subpart Q of our regulations. /1

No answers to USA Jet's interstate scheduled all-cargo application have been filed and no special issues regarding the applicant have come to our attention. Under these circumstances, we propose to decide the issue of the applicant's fitness on the basis of the written record. Moreover, since US-A Jet's proposed scheduled cargo operations are merely an outgrowth of services that have been conducted by the carrier on a charter basis, we conclude that there are no material issues of fact requiring an oral hearing or further procedures for their resolution, and we will, therefore, proceed to final action.

By Order 95-2-43, served February 21, 1995, USA Jet, a Delaware corporation located in Belleville, Michigan, was issued effective authority to perform interstate and foreign charter cargo air transportation operations, and began providing that service to a major automobile manufacturer using three DC-9-15 aircraft.

By Order 96-6-48, served June 28, 1996, USA Jet's certificates were transferred and reissued to an affiliated company, YIP Group, Inc., whose name was then changed to USA Jet Airlines, Inc., as a result of a corporate restructuring that consolidated the two commonly-owned companies into one organization.

Today, USA Jet's fleet consists of seven DC-9-NSF freighters operated under its Part 121 certificate authority and twelve DA-20 Falcon Jet freighters operated under its Part 135 certificate authority. While USA Jet's charter cargo operations have been and continue to be primarily focused on the automotive industry, it has also provided charter cargo operations for DHL, UPS, and the U.S. Postal Service using its DC-9 aircraft.

1/ The fitness information required by section 204.3 or our regulations was included, in part, with the carrier's original application in Docket OST-97-2719, as well as with its subsequent amendments. In addition, further information supplementing USA Jet's application was filed on November 10 and December 5, 1997.

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USA Jet indicates in its application that its proposed scheduled cargo operation is merely a natural outgrowth of services it has performed on a charter basis. Once USA Jet receives its requested authority, it initially proposes to provide scheduled cargo operations on an Yipslanti-St. Louis-E1 Paso-Kansas City-Yipslanti routing five times weekly using an aircraft from its current DC-9 fleet. USA Jet indicates that it will be performing these scheduled cargo services for past customers such as the U.S. Postal Service, Integrated Box Companies, and Logistics Providers.

At the time of USA Jet's fitness review in 1996 (see Order 96-ó-48), Messrs. David Hermelin Martin Goldman each held 50 percent of USA Jet's voting stock. Since then, the company has undergone some changes in its ownership. Currently, Martin Goldman holds 25 percent, Sheldon Goldman, his brother, holds 25 percent, David Hermelin holds 25 percent, and Brian Hermelin, his son, holds the remaining 25 percent of USA Jet's voting stock.

Brian Hermelin has joined USA Jet's senior management team as Chief Operating Officer and, while some of its key technical personnel remain unchanged, the carrier has made some adjustments in other key positions. Martin Goldman (President and Chief Executive Officer), Mitchell Noble (Vice President and General Manager), and Jahazinh Webb (Part 121 Chief Pilot), whose management skills were reviewed in Order 95-2-43 in connection with USA Jet's fitness, continue in their same roles. Key technical personnel adjustments include Michael Reardon, Ralph Hubbell II, Keith Pustelak, and Harlan Benjamin assuming, respectively, the roles of Director of Maintenance, Director of Operations, Director of Quality Control, and Director of Safety.

Prior to assuming the role of Chief Operating Officer, Mr. Herein served as USA Jet's Chief Financial Officer for three years - while simultaneously serving as a managing member of Itech Venture Capital. Before then, he was Vice President of Entergamement Productions for one year. He also was a member of the Securities Subcommittee Staff on the United States Senate Banking Committee for one year. For the prior two years, he served as an associate of DJS Group and as an investment banking analyst for E.F. Hutton and Company.

Mr. Reardon, an Airframe and Powerplant Mechanic, has been employed by USA Jet since 1994 serving as Director of Quality Control prior to accepting the position of Director of Maintenance. Mr. Reardon has 27 years of aviation maintenance experience that included positions such as facilities maintenance inspector, supervisor of quality assurance, air carrier maintenance superintendent, logistics programs manager, wing modification project maintenance manager, flightline maintenance supervisor, Director of Quality Control, and an airframe refurbishment and corrosion control supervisor with organizations that included Midcoast Aviation, Triad

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International Maintenance Corporation, Eastern Airlines, and the United States Air Force.

Mr. Hubbell, an Airline Transport Pilot, has been employed by USA Jet since February 1997 as Assistant Director of Operations and recently accepted the position of Director of Operations. Mr. Hubbell brought to the carrier 26 years of aviation military experience with the U.S. Air Force that includes positions such as Director of Current Operations, Director of Strategic Planning, Director of Command and Control and Airport Manager, Director of Operations Curriculum, Chief of Aircrew Analysis and Rated Management, Chief of Safety, Standardization and Evaluation Executive Officer, Executive Officer to the Wing Deputy Commander for Operations, Executive Officer to the Commander of the 15th Military Airlift Squadron, Chief of Training, Chief of Mission Control and Scheduling, and HC-130 Aircraft Commander with 105th Airlift Wing, Airlift Operations School at Headquarters Military Airlift Command, 60th Military Airlift Wing, 75th Military Airlift Squadron, 63rd Military Airlift Wing, Norton Air Force Be, 15th Military Airlift Squadron, and Hickman Air Force Base.

Mr. Pustelak, an Airframe and Powerplant Mechanic, has been employed by USA Jet since 1994 performing aircraft maintenance. He became Assistant Director of Quality Control in 1996, and recently assumed his new role as Director of Quality Control. Mr. Pustelak brought to the carrier 20 years of aviation maintenance experience with carriers that included Grand Aire Operations, Michigan Institute of Aeronautics, Aero Flight Service, Conrad Aero, Three Rivers Aviation, and Battle Flying Service.

Mr. Benjanun, an Airline Transport Pilot with other 24,000 hours of flight time, brings to the carrier 42 years of flight experience. He has worked as Director of Flight Safety, Director of Operations, Captain, and Check Pilot for carriers that included Air Transport International, International Charter Express, Flagship Express, Trans Continental Airlines, Kalitta Flying Service, Trans America, Universal Airlines, and Zantop Airways. His flight experience also includes time served with the Michigan Air National Guard and the United States Air Force.

Taking into consideration the experience and qualifications of USA Jet's key personnel and the fact that these individuals have already been managing the carrier's daily certificated charter cargo operations, we conclude that USA Jet has the management qualifications and technical ability to conduct its proposed scheduled cargo operations. /2

USA Jet currently provides charter cargo air transportation operations using its twelve DA-20 Falcon Jet aircraft and seven DC-9 aircraft. USA Jet proposes to initiate cargo

2/ The FAA also evaluates certain of the carrier's key personnel with respect to the minimum qualifications for those positions as prescribed in the Federal Aviation Regulations. The FAA has found each of the noted individuals to be qualified for his position with USA Jet.

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operations on a scheduled basis with an aircraft from its current DC-9 fleet on an Yipslanti-St. Louis-El Paso-Kansas' City-Yipslanti routing five times weekly as a natural outgrowth of services it has performed on a single-entity charter basis for customers such as DHL, UPS, and the U.S. Postal Service.

USA Jet has provided historic balance sheets as of December 31, 1994, 1995, and 1996, and income statements for the two months ending December 31, 1994, and the twelve months ending December 31, 1995 and 1996. Those historic documents show that the carrier's financial position has been healthy and consistently profitable. USA Jet has also provided a balance sheet for September 30, 1997, and an income statement for the nine months ending September 30, 1997. Even though that balance sheet reports negative stockholders' equity of $1.3 million as the result of USA Jet's having written off a $10 million investment in an affiliate company, the carrier continues to report an overall healthy financial posture with total assets of $44 minion, current assets of $18.34 million, current liabilities of $14.42 million, a current assets to current liabilities ratio of 1.27 to 1, and positive working capital of $3.92 million. Further, its income statement indicates continued profitability with a net income of $1.07 million for the nine months ending September 30, 1997.

USA Jet has furnished a proforma income statement for its first year of proposed scheduled cargo operations. This forecast, which assumes that the carrier's scheduled cargo operations will total 146 hours per month, indicates that the carrier will spend $60,000 in start-up costs for the acquisition of 24 additional IATA "A3" cargo containers and expects that the expenses for its scheduled cargo operations will total $4.0 million during its first year. /3

USA Jet intends to fund these operations internally through its ongoing charter operations. Further, USA Jet supplied a October 27, 1997, letter from Michigan National Bank verifying that it has available to it a $5.54 million line-of-credit.

In light of the fact that USA Jet has available funds sufficient to meet our financial fitness criteria, we conclude that the carrier is fit to conduct its proposed scheduled cargo operations without undue risk to consumers or their funds.

USA Jet stated that there have been no formal complaints filed or orders issued finding it or its key personnel in violation of the statute, nor have any charges of unfair, deceptive or anticompetitive business practices, or of fraud, felony or antitrust

3/ In evaluating an applicant's financial fitness, the Department generally asks that the company have access to financial resources sufficient to cover all pre-operating expenses plus a working capital reserve equal to the operating expenses that would be incurred during three months of normal certificated operations

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violations been brought against them. The carrier also stated that no certificate actions have been taken by the FAA against it, its owners or key personnel. USA Jet further stated that there are no actions or outstanding judgments filed against it, its owners, or key personnel.

Our search of the Department's records found that USA Jet has had no accidents. /4 USA Jet is the subject of two open enforcement files. The FAA has proposed a civil penalty for one case that alleges a USA Jet aircraft departed an airport without the proper clearances from airport authorities, the appropriate flight plan on file, and the assurance that the aircraft was in safe mechanical condition for the intended flight. The case remains under review. The other open enforcement file involves the FAA proposing issuance of a warning notice to USA Jet for allegedly violating a cargo carriage regulation. While these cases remain open, the FAA is not proposing any certificate action against USA Jet as the result of these alleged violations. Further, the FAA has advised us that USA Jet already possesses the appropriate operations specifications to conduct its proposed scheduled all-cargo operations, its recent operations are fully satisfactory, and that it knows of no reason why we should act unfavorably on USA Jet's application.

Based on the above, we conclude that USA Jet has the proper regard for the laws and regulations governing its services to ensure that its aircraft and personnel conform to applicable safety standards and that acceptable consumer relations practices are followed.

Section 41102 requires that certificates to engage in air transportation be held only by citizens of the United States as defined in 49 U.S.C. 40102(a)(15). That section requires that the president and two-thirds of the Board of Directors and other managing officers be U.S. citizens and that at least 75 percent of the outstanding voting stock be owned by U.S. citizens. We have also interpreted the statute to mean that, as a factual matter, the carrier must actually be controlled by U.S. citizens.

As noted elsewhere in this order, USA Jet is equally owned by Martin Goldman, Sheldon Goldman, David Hermelin, and Brian Hermelin, each of whom is a U.S. citizen. Further, the applicant has provided an affidavit attesting that it is a U.S. citizen and has affirmed that all of its owners, officers, and key personnel are U.S. citizens. Finally, there is nothing in the record that would lead us to conclude that control of USA Jet is not with citizens of the United States.

In view of the foregoing, we conclude that USA Jet is a citizen of the United States and is fit, willing, and able to provide the scheduled cargo Operations it proposes.

4/ It has had three minor incidents; none of which led to any FAA enforcement actions against the carrier.

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We remind USA Jet of the requirements of 49 U.S.C. 41110(e). Specifically, that section requires that, once a carrier is found fit initially, it must remain fit in order to hold its authority. To be assured that certificated air carriers continue to be fit after effective authority has been issued to them, we require that they supply information describing any subsequent substantial changes they may undergo in areas affecting fitness. Therefore, should USA Jet propose substantial changes in its ownership, management, or operations, it must first comply with the requirements of section 204.5 of our rules. /5 The compliance of the company with this requirement is essential if we are to carry out our responsibilities under section 411 l0(e). /6

With the issuance of an effective interstate scheduled all-cargo certificate to USA Jet, the interstate and foreign charter cargo certificates issued by Order 96-ó-48 are redundant. Therefore, we have decided to cancel these certificates. Our action here in no way impacts on the ability of USA Jet to conduct charter all-cargo operations.

ACCORDINGLY,

1. We find that USA Jet Airlines, Inc., is fit, willing, and able to engage in interstate scheduled air transportation of property and mail.

2. We issue a certificate of public convenience and necessity to USA Jet Airlines, Inc., authorizing it to engage in interstate scheduled air transportation of property and mail in the form and subject to the Terms, Conditions, and Limitations attached.

3. We cancel the interstate and foreign charter all-cargo certificates issued to USA Jet Airlines, Inc., by Order 96-ó-48, as redundant.

4. We grant the request of USA Jet Airlines, Inc., for leave to withdraw its application in Docket OST-97-2720.

5/ The carrier may contact our Air Carrier Fitness Division to report proposed substantial changes in its operations, ownership, or management, and to determine what additional information, if any, will be required under section 204.5. If the carrier fails to file the information or if the information fails to demonstrate that the carrier will continue to be fit upon implementation of the substantial change, the Department may take such action as is appropriate, including enforcement action or steps to modify, suspend, or revoke the carrier's certificate authority.

6/ We also remind USA Jet about the requirements of section 204.7 of our rules. This section provides, among other things, that (l) if the company ceases operations for which it was found fit, it may not resume certificated operations unless its fitness has been redetermined, and (2) if the company does not resume operations within one year of its cessation, its authority shall be revoked for dormancy.

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5. We will serve a copy of this order on the persons listed in Attachment A.

By:

CHARLES A. HUNNICUTT

Assistant Secretary for Aviation and International Affairs

(SEAL)